Stocks Up On China Trade “Truce”–But Markets Aren’t Sure The Truce Will Last Or Turn Into An Actual Deal

Remarks by Treasury Secretary Steve Mnuchin and White House economics advisor Larry Kudlow over the weekend have the market feeling that the United States and China may avert a full on trade war. The Standard & Poor’s 500 stock index was ahead 0.65% as of 2:30 p.m. in New York on Monday. The Dow Jones Industrial Average is up 1.11%. And the NASDAQ Composite Index is higher by 0.34%. (The Dow Industrial Average is more exposed on a percentage basis to the shares of big U.S. exporters such as Boeing (BA) than the other indexes.)

But that seems an oddly restrained reaction–The Trade War is over!!–until you remember that there is no actual deal and that the details are vague. (And that earlier last week the U.S. side in these talks was saying that China had agreed to reduce its trade surplus with the United States by $200 billion and the Chinese side was saying, We didn’t say that.) And that the White House has a history of reversing course in negotiations over night. And the numbers being thrown around don’t add up.

The statements boil down to “They are meeting many of our demands,” from Kudlow; the U.S. is “putting the trade war on hold,” from Secretary Mnuchin; and a White House statement that “China will significantly increase purchases of United States goods and services.” (On the other hand, former White House advisor and economic nationalist Steve Bannon is out opposing the deal, whatever it is.)

So far no details on what U.S. goods and services might see increased purchases by China and no accounting on whether these purchases would add up to a $200 billion reduction in the U.S. trade deficit with China. Some economists are pointing out that a $200 billion reduction in the U.S. trade deficit from China seems mathematically unlikely. The U.S. exported $154 billion of goods to China in 2017, and imported $431 billion, according to calculations by Bloomberg. “Taking $200 billion off that deficit would involve either more than doubling U.S. exports, almost halving its imports, or some combination of the two” at a time when many categories of U.S. exports (aircraft and industrial machines, for example) to China are already running near historical highs.

The market’s subdued reaction to this news today is an indicator that Wall Street doesn’t want to get too far ahead of itself in enthusiasm for a deal that it hasn’t seen.